Perspective
C O R P O R AT I O N
Expert insights on a timely policy issue
Harnessing Private-Sector Innovation to Improve Health
Insurance Exchanges
Carole Roan Gresenz, Emily Hoch, Christine Eibner, Robert S. Rudin, Soeren Mattke
O
verhauling the individual health insurance market—
as regulation of insurers, eligibility determination, and transfer
including through the creation of health insurance
of subsidy payments to insurers) but allows the private sector to
exchanges—was a key component of the Patient
assume responsibility for more-peripheral exchange functions,
Protection and Affordable Care Act’s multidimen-
such as developing and sustaining exchange websites (both the
sional approach to addressing the long-standing problem of the
technical architecture and the software overlays that support plan
uninsured in the United States (Public Law 111-148, 2010). Despite
comparison and enrollment). Although private-sector entities have
succeeding in enrolling millions of Americans, the exchanges
already stepped into these exchange-related functions on a limited
have confronted and still face several challenges, including poor
basis, privately facilitated exchanges could conceivably relieve the
consumer experience, high operational and development costs, and
government of its responsibility for so-called front-end website
incomplete market penetration.
operations and consumer decision-support functions entirely.
In this perspective, we consider a different model for
Although we do not offer a formal and conclusive assessment
the exchanges—a model that we term privately facilitated
of the costs and benefits of this model, our analysis suggests that
exchanges—which has the potential to address these challenges
a shift to privately facilitated exchanges could improve consumer
and deepen the Affordable Care Act’s impact. In this model, the
experience and, consequently, increase enrollment, and lower
government retains control over sovereign exchange functions (such
costs for state and federal governments. A move to such a model
[W]e consider a different model for the
exchanges—a model that we term privately
facilitated exchanges—which has the
potential to address these challenges and
deepen the Affordable Care Act’s impact.
Public Insurance Expansion
requires, nonetheless, managing its risks, such as reduced consumer
District of Columbia) adopted Medicaid expansion; six states were
protection, increased consumer confusion, and the possible lack of
debating expansion; and 16 had elected not to expand (Paradise,
a viable revenue base for privately facilitated exchanges, especially
2015). Between October 2013 and December 2014, Medicaid
in less populous states. On net, we believe that the benefits are
and Children’s Health Insurance Program (CHIP) enrollment
The Affordable Care Act expands public insurance by allowing
states to extend Medicaid eligibility to anyone with an income
below 138 percent of the federal poverty level (FPL) and offering
federal subsidies to states to cover most of the costs associated with
covering the newly eligible. As of January 2015, 29 states (plus the
large enough and the risks sufficiently manageable to seriously
increased by more than 10.7 million people in 49 states (Centers for
consider such a shift; we intend for this perspective to stimulate
Medicare and Medicaid Services, 2015).1
further discussion. In the rest of this paper, we provide background
information and more detail on our assessment.
Individual Mandate
A Brief Overview of the Affordable Care Act
Additionally, the Affordable Care Act imposes a penalty on
A primary objective of the Affordable Care Act was to address the
people who are not covered by insurance (with some exceptions).
long-standing problem of the uninsured. In 2011, approximately
The penalty in 2014 was $95 per adult and half that amount per
50 million Americans—roughly 16 percent of the population—had
child up to a maximum of $280 per family or 1 percent of family
no health insurance coverage (Office of the Assistant Secretary for
income, whichever was greater. Penalties increase each year and,
Planning and Evaluation, 2014). To improve coverage, Affordable
in 2015 (2016), are $325 ($695) for an adult and half that per
Care Act provisions tackled fundamental issues relating to the
child up to a maximum of $975 ($2,085) per family or 2 percent
availability and affordability of insurance. The law broadened the
reach of public insurance, requiring most Americans to have health
(2.5 percent) of income, whichever is greater. The law exempts
insurance or face a penalty (the so-called individual mandate),
people from the penalty who do not obtain coverage because they
establishing health insurance exchanges, providing for a subsidy for
cannot afford it.
the purchase of individual coverage, and putting in place a suite of
insurance regulations.
1
2
Connecticut and Maine did not report data.
Exchanges
[A] state may run its own exchange,
participate in a federal exchange, or partner
with the federal exchange.
The Affordable Care Act requires the establishment of exchanges
that allow people to purchase individual health insurance plans
but provides states with latitude regarding the implementation of
the exchange.2 In particular, a state may run its own exchange,
participate in a federal exchange, or partner with the federal
100 and 133 percent of the FPL, at 3 to 4 percent of income for
exchange (Dicken, 2013). In 2015, 13 states and the District of
those with incomes between 133 and 150 percent of the FPL, and
Columbia fully operated their own exchanges (called state-based
at an increasing percentage of income for higher income levels, up
marketplaces). Another three states performed all core functions
to 9.5 percent of income for those with incomes between 300 and
of state-based exchanges but relied on the federal government’s
400 percent of the FPL. For families with incomes between 100
information technology platform to handle eligibility determina-
and 250 percent of the FPL, cost-sharing subsidies further limit
tion and enrollment (called federally supported state-based market-
out-of-pocket expenditures for care, although these subsidies apply
places). Among the 34 states that relied on the federal exchange,
only to those who purchase a silver-level plan (Andrews, 2013).
seven partnered with the federal government by performing plan
Consumers can apply subsidies only to qualified health plans
management, consumer-assistance tasks, or other activities (called
(QHPs) bought on the exchanges as described below. In King v.
state partnership marketplaces). The remaining 27 states relied
Burwell, the Supreme Court upheld the legality of the Affordable
solely on the federal government for all exchange-related tasks
Care Act’s subsidies in all states, regardless of whether the state
(called federally facilitated marketplaces) (Dash, Monahan, and
operates its own exchange or relies on or partners with the federal
Lucia, 2013).
exchange.
Subsidy
Insurance Market Regulation
The Affordable Care Act provides a subsidy for people who
The Affordable Care Act established a suite of regulations related to
purchase health insurance coverage through the exchanges if they
plans sold on the individual market, including the following:
have income between one and four times the FPL, are ineligible
• It requires that plans cover a minimum basket of specified
for Medicaid, and have no affordable employer offer. The federal
essential health benefits (Center for Consumer Information
government subsidizes premiums in the form of a tax credit. It caps
and Insurance Oversight, undated).
premiums at 2 percent of income for those with incomes between
• It establishes guaranteed issue and renewability.
• It removes preexisting-condition coverage exclusions.
Our focus is on the individual exchanges, although the Affordable Care Act
also established exchanges for small businesses.
2
• It prohibits insurers from using health status to rate premiums.
3
Figure 1: Individual Market Policies
• It allows insurers to vary premiums based only on age, region,
family structure, and smoking status.
• It limits the amount of variation in premium by age (to a
l policies, includ
idua
ing
div
n
i
no
l
n–
Al
Af
f
• It requires regulatory review of annual health insurance
premium increases.
The regulations also aim to increase transparency for
consumers by requiring that plans sold through the individual
market have standardized actuarial values (catastrophic, bronze,
silver, gold, and platinum). Most of the Affordable Care Act’s regu-
Subsidyeligible QHPs,
i.e., bought
on the
exchange
Care Act implem
e
n
ble
tat
rda
ion
fo
Af
for smokers versus nonsmokers).
es
bands, not including children) and by smoking status (1.5-to-1
e
or
3-to-1 maximum for people in the oldest versus youngest age
t–compliant polic
e Ac
ies
Car
so
e
ld
bl
re Act–compli
a
a
be
C
e
ant
d
l
r
b
f
a
o
p
d
r
o
lic
fo
i
QHPs
Af
lations apply to all individual market plans, whether those plans
are sold on the exchanges or not (i.e., “off” exchange). However,
all plans sold on the exchanges must be QHPs, a designation that
requires adherence to additional requirements. QHP requirements
NOTE: The figure is illustrative only; ring sizes do not reflect
distribution of individual policies by type.
include ensuring adequacy of provider networks, inclusion of
RAND PE152-1
essential community providers in the network, and accreditation
with respect to quality measures. Although insurance providers
in the form of government contracts to private entities to develop
can sell QHPs off the exchanges, the federal government makes
exchange components. Figure 2 depicts, at a high level, typical
subsidies available only for QHPs purchased on the exchanges.
flows of information and the interactions among consumers,
Figure 1 illustrates the universe of individual policy types.
insurers, the exchanges, and the federal Data Services Hub
(described below).
Exchange Functions
The Affordable Care Act requires that exchanges perform a set
Eligibility and Enrollment
of core functions, including eligibility and enrollment, plan
management, and consumer assistance (Dicken, 2013; Barkakati
Exchanges share information with the federal Data Services Hub
and Wilshusen, 2014). Both the federal and state exchanges have
in real time to determine whether someone is eligible to purchase a
been developed through public–private collaboration, primarily
plan on the exchange; enroll in Medicaid or CHIP; enroll in other
4
government health care or health insurance programs; or receive
is responsible for making subsidy payments to issuers for enrollees
a subsidy and, if so, its amount. The exchange must also facilitate
in both state exchanges and the federal exchange.
enrollment in Medicaid or CHIP by transmitting information
for eligible people to a state agency and must enroll them in the
Plan Management
QHPs they have chosen (Dicken, 2013). The Data Services Hub
Exchanges must have processes for insurers to apply to offer a
supports eligibility determinations by accessing information from
health plan on the exchange, to determine whether a health plan
government agencies, such as the Social Security Administration,
meets QHP standards, and for ongoing review and oversight
the Internal Revenue Service, and DHS, to confirm Social Security
(Dash, Lucia, et al., 2013).3 The QHP application process is a
number, income, citizenship, and the like. The federal government
critical and complex part of plan management because it ensures
that offered policies meet the standards and may be subsidized.
Figure 2: Information Flows and Interactions
In short, the plan provider must submit a series of interlocking
Among Entities in Exchange Functions, Current
templates for each plan. The documentation requirements are
State
tors, and providers must compile the documentation in a short time
• Determines eligibility
• Enrolls the consumer
• Manages plans
• Supports the consumer
frame between the release of the federal guidance documents and
the QHP submission window.
at
io
Sends
applicant
information
Fi
le
sr
at
e
an
d
pl
a
n
in
f
or
m
Issues
coverage
n
Tr
a
ns
fe
rs
a
pp
lic
at
io
n
Consumer
considerably more complex than prior requirements of state regulaExchange
Seeks out
coverage options
Insurer
Transfers
subsidy
Consumer Assistance
Returns
information
to exchanges
Consumer-assistance functions for exchanges include provision
of a website, decision-support tools to enable comparison of
Federal Data Services Hub
available QHPs and the impact of any subsidy, a toll-free hotline
• Connects with the Social Security
Administration, DHS, and other federal
agencies
• Verifies the consumer’s identity
• Connects with state agencies to
determine eligibility for Medicaid and
CHIP
• Determines eligibility for other health
care coverage
• Determines eligibility for an exchange
purchase
• Determines subsidy eligibility and amount
and in-person assistance, a navigator program to provide impartial
information about the exchanges and help people select plans, and
3
States that chose to operate their own exchanges had flexibility regarding
various aspects of the exchanges, and one of the ways in which they varied was in
terms of how they recruited or limited insurers participating in the exchanges and
plans offered on the exchanges. Maryland, for example, explicitly required that
certain insurers participate in the exchange; to limit the choices that consumers
faced, the District of Columbia adopted policies to ensure that the exchange
offered only substantially distinct plans.
NOTE: DHS = U.S. Department of Homeland Security.
RAND PE152-2
5
outreach activities (Fernandez and Mach, 2013). Decision support
Planning and Evaluation, 2015a). Premium rates in 2014 were
includes website functionality, such as filtering of plans based on
considerably lower for exchange plans than for plans offered in
selected features (e.g., actuarial value or so-called metal type),
the individual market before Affordable Care Act implementation
premium, deductible, and insurance company. Some exchanges
(Skopec and Kronick, 2013), and most consumers had access to
provide quality information for plans (Dash, Lucia, et al., 2013).
coverage costing less than $100 in out-of-pocket (postsubsidy)
premiums (Office of the Assistant Secretary for Planning and
An Alternative Model of Public–Private
Evaluation, 2015a). Further, premium increases between 2014 and
Collaboration
2015 have been modest (2 percent for the second-lowest-cost, or
The exchanges were designed, developed, and created in a relatively
silver, plans) (Office of the Assistant Secretary for Planning and
Evaluation, 2015a).
short period; millions of people enrolled in health insurance
Without diminishing these successes in expanding and
coverage through the exchanges; most consumers shopping on
improving the individual market, it is important to recognize
the exchanges have had choices among issuers; and premiums on
room for improvement. Evidence points to the existence of a
the exchanges have been lower than expected. By October 2014,
sizable untapped market of consumers who are eligible for but not
6.7 million people were signed up for health insurance coverage
enrolled in health plans, including young adults: Approximately
through the exchanges, and enrollment reached 11.7 million
15 million Americans who were uninsured in 2014 were eligible to
in 2015 (Office of the Assistant Secretary for Planning and
purchase coverage through the exchanges (Office of the Assistant
Evaluation, 2014, 2015b). By December 26, 2014, 14 months
Secretary for Planning and Evaluation, 2014). Further, young
after the exchanges went live, HealthCare.gov hosted more than
adults, in particular, continue to have relatively high uninsurance
15 million unique visitors (by comparison, Pinterest took almost
rates—24 percent of adults ages 26 to 34 remained uninsured as
two years to reach that volume) (Constine, 2012). In 2014,
of the third quarter of 2014 (Levy, 2014). At the same time, the
74 percent of consumers were able to choose from three or more
exchanges have faced criticism over the quality of the consumer
issuers, and federal officials expect that percentage to rise to more
experience and have experienced significant technical challenges
than 90 percent in 2015 (Office of the Assistant Secretary for
and high development costs (Dicken, 2013; Baker et al., 2014;
Wong et al., 2014b; Venkatesh, Hoehle, and Aljafari, 2014).
Premium rates in 2014 were considerably
lower for exchange plans than for plans
offered in the individual market before
Affordable Care Act implementation.
In light of these challenges, we consider a different model for
running the exchanges—a model that we term privately facilitated
exchanges—that offers the potential to address these challenges
and deepen the impact of the Affordable Care Act. In particular,
we discuss a model with a greater role for the private sector for
6
The advent of aggregators for auto insurance—such as Google’s Compare and Insurance.com,
which provide consumers with tools for comparison shopping and coverage sign‑up—suggests
that consumers are willing to use aggregator sites in the insurance market.
exchange functions exclusive of those that are arguably sovereign
aggregation services” (Madnick et al., 2000, p. 1). Aggregators
and thus must remain under government control. These sovereign
have existed for more than a decade in a diverse range of industries,
functions include regulatory oversight over the insurance market;
including travel, finance, and car insurance. Some of these services
eligibility determinations for purchasing coverage through an
have attracted millions of users by providing usable interfaces to
exchange, for a subsidy, and for Medicaid or CHIP; and transfer of
easily compare products. The popularity and voluntary nature
subsidies to insurers. State regulators have to ensure that coverage
of these aggregators suggest that customers find them valuable.
products comply with state and federal law and that insurers are
In some markets, multiple aggregators compete with each other.
financially sound. For plans that are eligible for the subsidy, state
Because they generally list the same products (suppliers have an
and federal regulators must also certify their QHP designations.
interest in submitting their products wherever their potential
Eligibility determinations and subsidy transfers require the
customers would find them), aggregators compete with each
integration of sensitive data from government agencies. However,
other on user experience, user satisfaction, and decision-support
other exchange functions are arguably more peripheral—including
functionality. The advent of aggregators for auto insurance—such
operation of exchange websites, development and implementation
as Google’s Compare and Insurance.com, which provide consumers
of decision-support tools, data collection and synthesis to inform
with tools for comparison shopping and coverage sign‑up—
consumers about choices, and plan enrollment and payment—and
suggests that consumers are willing to use aggregator sites in the
thus might be more amenable to leveraging private-sector forces to
insurance market.
Innovative web-based services indicate the potential kinds of
address some of the challenges the exchanges face.
improvements that health insurance aggregators can achieve. Some
Data Aggregators in Other Industries
popular web-based companies offer a highly streamlined consumer
In other industries, private-sector entities commonly perform these
experience (e.g., Amazon), help simplify complex processes (e.g.,
types of data-aggregation functions. Companies billing themselves
TurboTax), or allow for shopping with greater price and option
as web aggregators, data aggregators, or simply aggregators are
transparency in decisionmaking (e.g., Kayak or Expedia). Although
“entities that collect information from a wide range of sources,
we recognize that health insurance could be inherently more
with or without prior arrangements, and add value through post
complex than these services because of uncertainty about future
7
health expenditures and specialized terminology, for example, there
The privately facilitated exchanges could
conceivably relieve the government of its
responsibility for front-end website and
consumer decision-support functions entirely.
is likely still room for innovation (Arnold et al., 2012).
Web-Based Entities in the Health Insurance Domain
Data aggregators have, in fact, begun to inhabit the exchange space
(Kuranda, 2013). Several websites, commonly called web-based
entities, “scrape” and synthesize data from HealthCare.gov and state
over nonsovereign functions. The privately facilitated exchanges
exchange websites to provide enhanced decision support (Center
could conceivably relieve the government of its responsibility
for Consumer Information and Insurance Oversight, 2014). One
for front-end website and consumer decision-support functions
example is HealthSherpa (Wlodarz, 2014). Originally designed as
entirely. In other words, once a sufficient number of functioning
an “overlay” to the federal exchange website to provide decision
and financially viable exchanges have emerged, state and federal
support but not enroll consumers (instead directing consumers to
governments could cease operating the front ends of their
the exchange after they selected a plan), the website is now part-
exchanges and provide only the back-end functions of the Data
nering with the U.S. Department of Health and Human Services
Services Hub and regulatory oversight.
to make the enrollment process smoother for consumers (Fung,
Operationally, private-sector entities would need to coordinate
2014). HealthSherpa interacts with the exchanges to obtain plan
their functions with those functions remaining under government
data and with the Data Services Hub for eligibility and subsidy
control. Two potential models exist for interactions with the Data
determinations and payment to issuers. Other examples of these
Services Hub. One would be fashioned after E-Verify,4 which
services are eHealthInsurance Services, Picwell, and GoHealth.
allows businesses to determine the eligibility of potential employees
Web-based entities interact not only with the public exchanges
and the Data Services Hub but also with insurer databases. They
to work in the United States. In this model (we call it E-Subsidy),
can obtain real-time information on a plan’s provider network and
each exchange would interface with the federal Data Services
cost data for common services and procedures. Some facilitate
Hub to verify a consumer’s ability to purchase on the exchange,
side-by-side comparisons of providers that are part of the network
determine the consumer’s eligibility for Medicaid or CHIP, and
or of different plan options and allow customized filtering of those
verify the consumer’s eligibility for subsidy and the amount of any
options.
subsidy.
Privately Facilitated Exchanges
4
Employers have the option to enroll in E-Verify and can submit data of
applicants and employees for verification. The U.S. Citizenship and Immigration
Services then compares the information with immigration and Social Security
Administration data to determine eligibility to work.
A logical extension of web-based entities is our envisioned model
of the privately facilitated exchange—that is, an exchange that takes
8
The other model would resemble the PayPal system, in which
Going forward, the exchanges could directly interface with
the consumer creates a single account that allows that consumer
insurers to access up-to-date plan information, such as prices,
to make secure payments on numerous websites. If we translate
benefits, and provider networks, similar to what happens in the
this model to the exchange context, the consumer would create an
travel industry, in which companies make data on availability and
account on a third-party private website that would hold pertinent
prices available to aggregators. The government would maintain
information about that consumer’s eligibility to purchase exchange
control over the QHP certification process and responsibility for
coverage and the amount of any subsidy. Exchanges would allow
regulatory oversight of insurers, but this change would decrease
consumers to link to these accounts and use them to authorize the
the complexity of the QHP template, which would be reduced to
transfer of their eligibility and subsidy information.
a regulatory filing, and improve the accuracy and timeliness of
displayed plan information. Figure 3 illustrates the data flows for
Independently, the transition to privately facilitated
privately facilitated exchanges under the e-subsidy operating model.
exchanges could also pave the way toward greater automation of
plan-management functions. Currently, insurers have to submit
Figure 3: Information Flows and Interactions
detailed information about health plans they intend to offer on the
Among Entities in Exchange Functions, Proposed
exchanges through so-called QHP templates. Those templates are
E-Subsidy Model
a set of linked spreadsheets into which insurers enter data, such
Federal Data
Services Hub
as corporate information, medical, dental and pharmacy benefits,
network, copayments, and premium rates. They serve a dual
Transfers
subsidy
purpose: They constitute both a regulatory filing and a repository
for plan information on the exchanges. This dual purpose creates
Verifies identity; determines
eligibility for Medicaid or
CHIP, other programs, and
exchange purchase; and
determines the amount of
subsidy, if any
an operational challenge because the regulatory nature of the
templates necessitates that they be static—i.e., errors cannot be
Provide
information
corrected or changes incorporated quickly—but requires resubmis-
Privately
facilitated
exchanges
Consumers
Seek out
coverage options
sion and uploading of the corrected templates during specified
service windows. In other words, even if regulators and the carrier
Transfer
applications
are aware of an error, the consumer could continue to see incorrect
information for weeks. Similarly, information on a health plan
Insurance regulators
• Oversees insurance
plans
•Certifies QHPs
that is dynamic by its very nature, such as network providers and
their ability to accept new patients, cannot be updated in a timely
fashion.
RAND PE152-3
9
Provide plan
information
Insurers
Tech Improvements Mean You Can Now Window Shop,” 2014;
Greater convenience could also have the benefit of making the
“Meet the Press Transcript,” 2014).
exchanges a more attractive destination for consumers who seek to
Decision support is a key element of the consumer experience
obtain individual coverage but are not eligible for subsidies and a
marketplace for insurance products beyond coverage that fulfills
and is critical for helping consumers select plans that will best serve
the requirements of the individual mandate, such as vision and
them (Krughoff, Francis, and Ellis, 2012). Recommended best
dental insurance or supplemental coverage to cover copayments. In
practices in terms of decision support include the following:
• providing an out-of-pocket cost calculator that enables
the next section, we consider the potential benefits and risks of a
consumers to estimate total annual spending, including both
move toward privately facilitated exchanges.
premium and out-of-pocket costs
Potential Benefits and Risks
• enabling sorting and filtering of plans to highlight best-fit
We consider the potential advantages and challenges of moving
plans and to organize options, including shortcuts to help
exclusively to privately facilitated exchanges by assessing the
consumers select plans quickly
• highlighting summary information about what matters most
model along four dimensions: (1) consumer experience, (2) choice,
to consumers
(3) consumer protection, and (4) cost and sustainability.
• providing a directory to display health care providers particiConsumer Experience
pating in each plan (Pacific Business Group on Health, 2013).
The quality of consumers’ experiences with state and federal
Several studies suggest that the federal exchanges have fallen
government exchanges—not only with decision support related to
plan choice but also the entirety of consumers’ interactions with
short in terms of decision support. A systematic assessment of
the exchange—has been less than optimal. Technical issues were
the choice architecture of federal and state exchanges found
a major problem during the first open-enrollment period. During
robust sorting and filtering options but limited decision support
the 2014 rollout, site glitches delayed early users—multihour
(Baker et al., 2014). For example, none of the exchanges provided
wait times, blank menus, and prompts and questions not relevant
personalized total cost estimates (including premiums, subsidies,
to their circumstances (Ornstein, 2013). Although the federal
and out-of-pocket expenses); none followed recommended usability
exchange was designed to provide real-time eligibility and enroll-
standards (Doulgerof, 2008); none provided the choice between
ment for Medicaid and CHIP, some users had to wait for extended
long versus short paths to enrollment; and few had integrated
periods of time to learn whether they had been granted access and,
provider information (Ornstein, 2013). Between the 2014 and 2015
at times, had to reapply on their state websites. The rollout team
open-enrollment periods, the choice architecture remained largely
treated these performance issues as a priority, and such problems
the same, although some aspects, such as sorting and filtering and
have been far less common for users in 2015 (“HealthCare.gov’s
quality information, improved (Ornstein, 2013).
10
The monopoly nature of the award might have limited the incentive
Other studies of federal and state exchanges
confirmed deficiencies with respect to the
consumer experience, including health
insurance jargon that can be confusing for
nonexperts, overly complex filters and sorting
tools for cost and coverage preferences, and
an overwhelming number of options to some.
to continuously improve the product.
Web-based entities have endeavored to offer a more streamlined consumer experience. About 110,000 consumers have used
HealthSherpa, which suggests that consumers see added value in
the web service, although some experts have suggested that available decision support still falls short by some standards (Bidgood,
2015; “3%,” 2015; Sprung, 2014). According to its 2014 U.S.
Securities and Exchange Commission filings, eHealthInsurance
Services serves more than 1 million members.
A greater reliance on private-sector entities for the front-end
Other studies of federal and state exchanges confirmed defi-
exchange functions could substantially improve consumer
ciencies with respect to the consumer experience, including health
experience. As we pointed out, the planned and rigid nature of
insurance jargon that can be confusing for nonexperts, overly
government procurement processes is not ideally compatible with
complex filters and sorting tools for cost and coverage preferences,
the innovation and experimentation paradigms of modern web
and an overwhelming number of options to some (Brownlee, 2014;
design that have spawned highly user-friendly websites in many
Wong et al., 2014a, 2014b). Content organization, user experience,
e-commerce markets. Competition between privately facilitated
graphics, and navigation have been identified as key leverage points
exchanges would likely ensure innovation and product differentia-
for improvement (Venkatesh, Hoehle, and Aljafari, 2014). An
tion. Niche providers could emerge that focus on hard-to-reach
additional limitation has been the lack of a robust mobile applica-
segments, such as the young. Notably, private websites are not
tion for the federal exchange, despite the fact that an estimated
currently required to comply with certain government require-
25 percent of all visitors to the federal exchange arrived by mobile
ments, such as accessibility for visually impaired users (Kuranda,
devices (Brownlee, 2014).
2013). If private-sector entities fully assume these functions, the
The government contracting process requires defining clear
federal government would need to regulate to ensure accessibility
specifications for deliverables up front; competition for the work
for all consumers (Kuranda, 2013).
based on understanding of the task, capabilities, prior experience,
A better consumer experience could, in turn, help boost
and cost; and award based on best value to the government at the
enrollment among people who remain uninsured but are eligible
time of the decision. Changes to scope, deliverables, and awardees
to purchase on an exchange. The complexity of the process does
require complex contract modifications, which likely limited the
not deter all such people from purchasing—cost, for example, is
ability to use industry best practices in software and website design.
another consideration—but the ease of exchange purchase is a
11
contributing factor. Among people who remained uninsured in
Figure 4: Number of Insurers Operating on Each
California after the implementation of the Affordable Care Act,
State’s Exchange
6 percent reported that problems with the application process
1–4
were a barrier to coverage. Among the uninsured who attempted
5–8
9–11
13–16
WA
to get coverage (roughly one-third of the uninsured), the majority
MT
ND
OR
found shopping for coverage difficult, with more than two-thirds
ID
WY
reporting problems comparing plans or understanding out-of-
NV
pocket and premium costs (DiJulio et al., 2014). Additionally,
CA
in a survey of adult U.S. Latinos, among the 29 percent who
reported visiting an exchange website, 5.7 percent tried to enroll
SD
WI
AZ
PA
IL
CO
KS
OK
NM
TX
2.3 percent did not try to enroll because doing so was too compli-
OH
IN
MO
WV
KY
VA
NC
TN
AR
NH
MA
RI
CT
NJ
DE
MD
DC
SC
MS
but had problems that prevented them from enrolling, and another
NY
MI
IA
NE
UT
VT ME
MN
AL
LA
GA
FL
AK
cated or confusing (Latino Decisions, 2015).
HI
SOURCE: Henry J. Kaiser Family Foundation, 2015a.
Choice
RAND PE152-4
Functioning markets for individual coverage have developed in
all states, and at least two insurers offer individual policies on the
exchanges voluntarily is also real given the small size of some
exchanges of every state. However, the number of insurers that
markets: Only about 12,000 and 18,000 individual policies were
offer exchange policies remains limited in the less populous states,
bought on Hawaii’s and North Dakota’s exchanges, respectively,
as Figure 4 illustrates. More than half of the states have fewer than
for 2015 (Henry J. Kaiser Family Foundation, 2015b).
four carriers, and West Virginia has only two.
Through three changes to the cost–benefit trade-off, privately
We have not found evidence that the limited number of
facilitated exchanges could attract additional insurers and increase
competitors in many states restricts consumer choice in a mean-
the number of plan options that they make available. First,
ingful fashion. However, it does expose less populous states to the
companies would expect that improved consumer experience would
risk of having no plans or no competing plans that sell individual
policies on their exchanges if only one or two companies decide to
attract more shoppers to the exchanges and makes actual purchases
leave the market or become insolvent, as was the case with Iowa’s
more likely (see earlier discussion) (Wong, 2014a; Latino Decisions,
CoOportunity Health. That departure left some consumers with
2015). Second, the opportunity to market additional products,
only one company offering plans on the exchange (CoOportunity
such as non-QHP plans and supplemental coverage, could entice
Health, 2015; Masters, 2015). This risk of companies leaving the
insurers to participate in the exchanges, although insurers can
12
already market those products through existing channels, such
law’s intent to provide greater transparency and simplify decision-
as brokers and their own websites. Third, an increase in insurer
making. Even if insurer-specific or nonexhaustive websites include
participation might follow if privately facilitated exchanges succeed
disclaimers about the information provided, some consumers
in streamlining and automating plan-management functions—in
might feel fatigue from the additional decision (choosing the type
particular, the QHP application process. This change would go
of exchange website from which to purchase insurance) beyond
well beyond the scope of the current web-based entities and would
decisions about the QHP to purchase (Rice, 2013). Decision
require collaboration between regulators, insurers, and private
fatigue related to website choice could lead consumers to avoid the
exchange operators.
market and might differentially affect certain types of consumers,
such as those with low health or financial literacy.
Consumer Protection
Further, consumers might not view the privately facilitated
The Affordable Care Act increased consumer protection in the
exchanges as being the same kind of honest broker as the govern-
individual market primarily through two mechanisms. The first
ment exchanges. Consumers might—legitimately—fear that filters,
was the creation of standardized and comprehensive policies with
defaults, and other nudges will direct them toward certain plans
strict pricing regulation and guaranteed issue, and the second was
that represent profit potential for the exchange provider or associ-
the establishment of a unified exchange for subsidy-eligible plans,
ated insurers, as opposed to representing the consumer’s optimal
on which all available options are listed for comparison.
choice. McWilliams points out that nudging is a form of agency
A shift to privately facilitated exchanges would not affect
and notes that the agent’s interests might not necessarily align with
the first mechanism because regulations for individual market
the consumer’s interests (McWilliams, 2013). Privately facilitated
policies would still apply. However, competing exchanges might
create confusion and uncertainty among consumers, in particular
exchanges could also raise consumer concerns about data protec-
if exchanges may market QHPs along with non-QHP and other
tion and privacy.
Measures to mitigate concerns about consumer protection
products, and offer only a subset of the available plans or plans of a
include the following:
single insurer.
• maintenance of at least one exchange that lists all QHPs in a
Although it might be positive for competition and innovation,
differentiation, if it confuses consumers, would undermine the
given market
Although it might be positive for competition and innovation, differentiation, if it confuses
consumers, would undermine the law’s intent to provide greater transparency and simplify
decisionmaking.
13
The existence of both short- and long-term revenue potential is essential if the government
wishes to allow the private sector to fully provide the selected exchange functions
Affordable Care Act, who provide unbiased advice on coverage
• regulation to govern exchange transparency so that consumers
know what range of plans is listed and which plans meet QHP
options and support in completing the enrollment process.
criteria
• regulation to ensure that decision-support tools do not direct
Cost and Sustainability
consumers to plans for profiteering purposes (e.g., kickbacks
The federal government launched HealthCare.gov with substantial
from certain insurers to exchanges for directing healthy
investment of federal funds and staff resources. Although many
people to its plans or from insurers to exchanges in response
experts have criticized the high development costs, those initial
to prioritized direction to the insurer’s plans). State insurance
costs are sunk and should not influence decisions about the
regulations address steerage by brokers, but the federal govern-
future exchange model. Instead, the appropriate comparison is
ment would need to develop new regulatory guidance on the
between the costs to state and federal governments of directly
sale of insurance in this setting.
providing front-end exchange services on the one hand and, on
• strict regulation of data privacy and security to give consumers
the same level of protection that they currently enjoy when
the other hand, monitoring the privately facilitated exchanges. The
enrolling through the federal or a state exchange
monitoring costs are probably considerably lower than the current
• enforcement of those rules with a cadre of skilled workers who
operating budgets, and the potential savings thus could be substan-
can effectively monitor the exchanges and help avoid regula-
tial. For example, the federal contract to Accenture to support
tory capture (wherein regulators act in the interest of private-
HealthCare.gov for the next five years is worth $563 million
sector entities that dominate the industry they are regulating
(although not all of those costs are strictly associated with front-end
instead of in the public interest) (Dal Bó, 2006).
services) (Accenture, 2014; Johnsrud, 2014). Looking ahead, we
see that resources available for maintaining and improving the
Although effective monitoring and regulatory oversight could
exchanges could be more limited, making more urgent the need to
help alleviate these concerns in substance, private exchange websites
would need to earn consumers’ trust for potential gains in enroll-
consider alternatives for increasing the affordability and sustain-
ment to be realized, and approaches to monitoring and regulation
ability of the exchanges. Although states relied on federal grants
would need to be adapted to this context. Moreover, consumers
to develop their exchanges, the law requires that state exchanges
would still need to have free access to navigators, as defined by the
be self-sustaining by 2015. Meanwhile, a change in administration
14
from the presidential election could change funding priorities
to support exchanges. These challenges include concerns about
(Dash, Lucia, et al., 2013; Dash, Giovannelli, et al., 2014).
the consumer experience, costs of sustaining the exchanges, and
5
uncertainty around the availability of resources for continuing
The existence of both short- and long-term revenue potential
is essential if the government wishes to allow the private sector
operations, and the existence of a sizable untapped market of
to fully provide the selected exchange functions. The emergence
consumers who are eligible for but not enrolled in exchange plans,
of web-based entities in the context of health insurance and their
including young adults.
In this perspective, we discuss a model wherein the government
longevity in other domains suggests that privately facilitated
retains control over core sovereign functions (regulation of insurers,
exchanges can be financially sustainable. Like travel websites,
eligibility determinations, and transfer of subsidy payments to
those exchanges could generate revenues from broker commis-
insurers) but allows the private sector to assume responsibility for
sions, advertising, and listing fees for products other than QHPs.
more-peripheral exchange functions, such as development and
In the short term, the continued existence of state and federal
sustainment of the technical architecture for exchange websites and
exchanges while the privately facilitated exchange market incubates
the software overlays that support plan comparison and enrollment.
protects against instability in the market. Because the Affordable
Our analysis suggests that this shift could yield benefits
Care Act requires the existence of an exchange in each state, the
in terms of improved consumer experience and, consequently,
health insurance industry might have to commit to maintain a
increased enrollment and lower costs for state and federal govern-
consortium-funded exchange if no privately facilitated exchange
ments, although the shift would have to be gradual and closely
appears sustainable in a given state.
monitored to ensure that viable, attractive, and trusted alternatives
to the public exchanges emerge for all states. The main risks are
Summary
reduced consumer protection, increased consumer confusion,
The Affordable Care Act overhauled the individual health insur-
and the lack of a viable revenue base for privately facilitated
ance market to help bring health coverage to the vast majority
exchanges—in particular, in less populous states. Overall, we
of Americans. A well-functioning and sustainable marketplace is
believe that the benefits are large enough and the risks sufficiently
integral to achieving the law’s objective of reducing the number
manageable to seriously consider such a shift. We should qualify,
of uninsured. Several challenges the exchanges face suggest
however, that we intend for this perspective to stimulate the policy
consideration of alternative models of public–private partnerships
debate, and it does not offer a formal and conclusive assessment
of costs and benefits. Efforts to monitor and rigorously evaluate
Some states will use portions of existing premium taxes to help fund their
exchanges; others could levy taxes on insurers in the individual and small-group
markets; and some plan to use advertising revenue on exchange websites.
5
privately facilitated exchanges already in operation will be important for informing the policy discussion going forward.
15
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18
Acknowledgments
The research underlying this paper was sponsored by Aetna, Inc., and
conducted in RAND Health Advisory Services, the consulting practice of
RAND Health. The authors would like to thank Justin Giovannelli and Chapin
White for their thorough review and instructive feedback. Special thanks
also to Patrick Orr for helping us with figures, references, and copyedits. A
profile of RAND Health Advisory Services, its capabilities and publications,
and ordering information can be found at www.rand.org/rhas.
About the Authors
Carole Roan Gresenz is a senior economist and director of the
Economics, Sociology, and Statistics research department. She holds a
Ph.D. in economics from Brown University and a B.A. in economics from
Loyola University Maryland.
Emily Hoch is manager of RAND Health Advisory Services, the consulting practice of RAND Health. She received her M.Sc. from the London
School of Hygiene and Tropical Medicine and B.A. from the University of
Wisconsin—Madison.
Christine Eibner is a senior economist at RAND. She earned her
bachelor’s degree in English and economics from the College of William
and Mary and her doctorate in economics from the University of Maryland,
College Park.
Robert S. Rudin is an information scientist at RAND. He holds a
Ph.D. in technology, management, and policy at the Massachusetts Institute
of Technology.
Soeren Mattke is a senior scientist and the managing director of
RAND Health Advisory Services, RAND Health’s consulting practice. He
received his M.D. from the University of Munich and his M.P.H. and D.Sc.
from the Harvard School of Public Health.
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